The Antecedents of Customer Loyalty: An Empirical Investigation in Life Insurance Context

Abstract

The present paper seeks to offer the most decipherable and widely applicable antecedents of customer loyalty. It explores the extant literature on customer loyalty and brings out seven variableswhich are responsible for formation of customer loyalty. Further, the relative importance of these variables has been ascertained through Multiple Regression Analysis which revealed that service quality and commitment are the strongest predictors of customer loyalty in theIndian life insurance industry. The paper also attempts to assess the loyalty status of life insurance customers in India and draw a comparison between public and private sector life insurancecompanies in order to provide significant insights to the life insurance companies that may assist them in devising better loyalty practices. The findings suggest that Indian customers do care about the public sector status of a financial service provider as it entails a sense of security and stability and thus creates a difference between customer loyalty of public sector life insurerand that of private sector life insurer. The paper holds significant implications for academicians interested in dynamics of customer loyalty as well as the marketers of life insurance services whoare concerned with customer relationships.

Full text

139
The Antecedents of Customer Loyalty:
An Empirical Investigation in Life Insurance
Context
Alok Kumar Rai, Srivastava Medha
Abstract
The present paper seeks to offer the most decipherable and widely applicable antecedents of
customer loyalty. It explores the extant literature on customer loyalty and brings out seven vari-
ables which are responsible for formation of customer loyalty. Further, the relative importance
of these variables has been ascertained through Multiple Regression Analysis which revealed
that service quality and commitment are the strongest predictors of customer loyalty in the
Indian life insurance industry. The paper also attempts to assess the loyalty status of life insur-
ance customers in India and draw a comparison between public and private sector life insurance
companies in order to provide signicant insights to the life insurance companies that may
assist them in devising better loyalty practices. The ndings suggest that Indian customers do
care about the public sector status of a nancial service provider as it entails a sense of security
and stability and thus creates a difference between customer loyalty of public sector life insurer
and that of private sector life insurer. The paper holds signicant implications for academicians
interested in dynamics of customer loyalty as well as the marketers of life insurance services who
are concerned with customer relationships.
Key words: customer loyalty, service quality, customer satisfaction, relative importance, life insurance.
1. INTRODUCTION
There is an observable worldwide shift toward loyalty marketing in most of the sectors across var-
ious industries. The earlier business goal of ensuring customer satisfaction has got undermined
due to prevailing colossal relationship orientation of businesses that calls for going beyond the
boundaries of satisfaction and create a commitment based enduring association with customers
that renders immunity to the business against competitive pressures. Apart from bringing it to
the centre stage of customer related affairs of the company, the ethereal, yet corporeal advan-
tages of customer loyalty have rendered it a place of supreme importance in academic circles as
well. The value of customer loyalty for service industries has been recognized by many research-
ers (Bloemer et al., 1999; Caruana, 2002; Asuncion et al., 2004). Keaveney (1995); Gremler and
Brown (1996) underlined its potential effect on the development of sustained competitive edge
for the service organizations. The distinctive nature of services, increased role of technology
and higher customer involvement in service delivery processes have furthered the importance
of customer loyalty in service industries. Customer loyalty not only ensures repeat purchases and
positive publicity with greater value in terms of reliability, it also leads to host of other signicant
benets such as cross buying intentions, exclusive and priority based preference to the company
and its products/ services, greater share of wallet and so on which provide a competitive edge
to the company. Owing to these discernible and some other latent outcomes of customer loyalty
Vol. 5, Issue 2, pp. 139-163, June 2013
ISSN 1804-171X (Print), ISSN 1804-1728 (On-line), DOI: 10.7441/joc.2013.02.10
Journal of Competitiveness
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Journal of Competitiveness 140
like convivial attitude towards company’s business policies, integrated marketing communica-
tion, new products and customer service initiatives, greater tolerance in the event of service
failure and lower resistance to price ups, etc., companies are hugely interested in a systematic and
well-assisted development of loyalty behaviours among their customers. Terblanche and Boshoff
(2006) agreed that comprehending the precursor of loyalty is a requisite if one wants to attain
the maximum benets of loyalty. Hence, there is a pressing need for deeper exploration into the
precursors of loyalty that not only operate as its sources but also act as enhancers.
In the age of cut throat competition and heightened customer expectations, cutting on defec-
tion and building bonds of long lasting loyalty with the customers seem to be the only means
of sustained protability and growth. Life insurance services form a prominent portion of In-
dian customers’ investment portfolio and thus, hold great potential and prospects of prots and
growth. However, life insurance industry in India is also faced with a number of challenges as on
one hand, relaxation in FDI limit is sure to intensify the competitive pressures whereas increased
customer awareness and expertise elevate customers’ expectations several levels up and reduce
the zone of tolerance. Thus, the signicance and relevance of customer loyalty and the factors
responsible for its formation become all the more palpable in life insurance industry.
2. THEORETICAL FRAMEWORK
In context of personal relationships, loyalty implies a feeling or an attitude of devoted attach-
ment caused by affection. Such attachment makes a person feel responsible to persevere with
that relationship even in adverse times. However, loyalty in commercial relationships involving
company and its’ customer denote a subtly different meaning. Rundle – Thiele (2005) explained
this change in meaning of loyalty and opined that loyalty in business relationships misses the
component of ‘an attitude of devoted attachment’. A customer can persevere in his relationship
with the company and exhibit loyal behaviours on the basis of his faith in the brand. He dened
loyalty as:
“The state or quality of being loyal, where loyalty is dened as a customer’s allegiance or adherence towards an
object.”
- Rundle – Thiele (2005)
The following section is an attempt to elucidate on the concept of customer loyalty and position
of loyalty related research in life insurance industry.
2.1 Customer Loyalty
Yi (1990); Hallowell (1996); Homburg and Giering (2001) noted that initially, customer loyalty
has been perceived to be a behavioural concept entailing repeat buying of product or service
measured as the series or share of purchases, referrals, magnitude of relationship or all of the
above mingled together. Day (1969) found the behavioural conceptualization of loyalty insuf-
cient for distinguishing true loyalty from fake one and suggested that loyalty should be evalu-
ated through both behavioural and attitudinal measures. Researchers such as Jacoby and Kyner
(1973), Dick and Basu (1994), Oliver (1997) and Berne´ et al. (2001) highlighted the attitudinal
dimension of loyalty. The need of incorporating an attitudinal component of loyalty has been
emphasized by Bandyopadhyay and Martell (2007) who revealed that situational factors like
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141
unavailability of stock, individual factors like resistance to change and socio-cultural factors like
social bonding form a cause to differentiate behavioural loyalty from attitudinal loyalty.
Referring to Oliver (1997), Walsh et al. (2008) dened loyalty as a “deeply held commitment to
re-buy or re-patronise a preferred product or service consistently in the future, which causes
repetitive same-brand or same-brand set purchasing, despite any situational inuences and mar-
keting efforts that might cause switching behaviour” (p. 982). Baumann et al. (2011) expressed
loyalty as attitude and behaviour. Ladhari et al. (2011) conceptualized loyalty as a customer’s
continued patronage of a particular bank. Underlining the role of satisfaction,
Based upon the above discussion, it is suggested that “Customer Loyalty is a psychological character
formed by sustained satisfaction of the customer coupled with emotional attachment formed with the service pro-
vider that leads to a state of willingly and consistently being in the relationship with preference, patronage and
premium”.
2.1.1. Customer Loyalty in Life Insurance Industry
Guillen et al. (2008) noted that the number of empirical studies on customer loyalty in the insur-
ance sector is low. They contended that it is important to monitor customer loyalty and business
risk for the life insurance companies due to reasons such as access to information related to the
quality of portfolio, effective handling of customer recruitment and retention strategies, evalua-
tion of market’s competitiveness in the insurance sector and company’s position in that market.
Durvasula et al. (2004); Tsoukatos and Rand (2006) described life insurance services are highly
intangible. Crosby et al. (1990) pointed that life insurance is primarily sold by insurance agents,
who are the only touch point for the customers in most cases. According to Lombardi (2005),
keeping the customers is crucial for life insurers as a long-lasting association with the customers
results in greater instances of cross-selling and positive recommendation intentions. Zeithaml
et al. (1996) pointed that the insurance provider gets to recover the selling cost of an insurance
policy only when the policy is renewed for three to four years. Moore and Santomero (1999);
Diacon and O’Brien (2002) posited that high retention rates are correlated with better nancial
performance.
Formation of customer loyalty is a thorough process that involves a series of customers’ evalu-
ative judgements and other psychographic variables that stem from these service evaluations.
Dick and Basu (1994); Oliver (1999) noted that researchers have been identifying and examining
many antecedents of customer loyalty towards stores, companies, and brands over the years.
Beerli et al (2002) indicated that factors affecting customer loyalty have been attracting a lot of
attention in the recent years from academicians as well as marketers in service industry.
2.1.2. Antecedents of Customer Loyalty
Ball et al. (2004) reviewed the literature regarding the antecedents of loyalty, both in terms of the
business-to-business and business-to-consumer cases. They mentioned that measuring customer
loyalty and its determinants into different markets and countries may bring out signicant vari-
ance in the explanation of loyalty. Further, they explored the antecedents and categorized them
into four groups which are depicted in the Figure 1.
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Journal of Competitiveness 142
Characteristics of
the Environment
Characteristics of
the Dyadic Rela-
tionship
Characteristics of
the Consumer
Consumer percep-
tions of the rm
or the relationship
with the marketing
rm
Competitive at-
tractiveness and
perceived switch-
ing costs ( Jones
et al., 2000)
Technological
changes (Par-
asuraman and
Grewal, 2000)
Legal, economic,
or environmental
changes



Shared norms
(such as solidar-
ity, mutuality,
exibility, and
conict/com-
plaint resolution)
(Gundlach et al.,
1995)
Equity (Oliver
and Swan 1989)
Spatial proximity
and relationship
duration (Price et
al., 1995)



Relationship ten-
dency or prone-
ness (Ganesh et
al., 2000)
Deal proneness
(Lichtenstein et
al., 1995)
Involvement in
the category



Overall product
or service satis-
faction (Oliver
1997)
Performance
trust and Be-
nevolence trust
(Ganesan, 1994)
Depth or value
of communica-
tion (Morgan and
Hunt, 1994)
Firm or brand
image (Anderson
and Weitz, 1989)
Relationship
quality (Crosby et
al., 1990)
Relationship sat-
isfaction (Morgan
and Hunt, 1994)






Fig. 1 - Classication of Customer Loyalty Antecedents. Source: Ball et al. (2004).
The following sections offer most widely accepted antecedents of customer loyalty by rst giv-
ing a brief explanation of the concept and subsequently, presenting an account of studies that
demonstrated their respective links with customer loyalty:
2.1.2.1. Service Quality
According to Fogli (2006) service quality is “a global judgement or attitude relating to a par-
ticular service; the customer’s overall impression of the relative inferiority or superiority of the
organization and its services. Service quality is a cognitive judgement” (p. 4).
Toran (1993) argued that quality should be an essential element of insurance services. Stafford
et al. (1998) pointed that insurance providers are putting increasingly more emphasis on service
quality and customer satisfaction. They further noted that service quality in insurance industry
is measured through complaint ratio which, as put by Wells and Stafford (1995), is the number of
received complaints divided by a measure of insurance business in force.
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143
Service quality is found to be positively related to readiness to recommend the company (Bould-
ing et al., 1993; Parasuraman et al., 1991), willingness to pay more as well as loyalty (Zeithaml et
al., 1996). A positive relation has also been reported between service quality and willingness to
pay higher prices and customer loyalty (Baker and Crompton, 2000).
Wong and Sohal (2003) attempted to assess the impact of service quality dimensions on cus-
tomer loyalty at two levels of retail relationships i.e. interpersonal (person to person) level and
store (person to rm) level. Their ndings suggested that there is a positive association between
service quality and customer loyalty and this association is stronger at company level than at the
interpersonal level with tangibles being the most signicant predictor of loyalty at store level and
empathy at interpersonal level.
2.1.2.2. Customer Satisfaction
Oliver (1980) explained that customer satisfaction arises when customers weigh their percep-
tions of actual service performance against their expectations and any discrepancy between the
two generates disconrmation which can be of three types:
Positive disconrmation: high satisfaction.
Negative disconrmation: high dissatisfaction.
Zero disconrmation.
Oliver (1997) stated that “satisfaction is the consumer fullment response. It is a judgment that
a product or service feature, or the product or service itself, provided (or is providing) a pleasur-
able level of consumption-related fullment, including levels of under-or over-fullment”.
Over the years, several researchers such as Ganesan (1994), Mittal, Ross, and Baldasare (1998),
Mittal and Kamakura (2001) and others have exhibited customer satisfaction to be inuenc-
ing the factors that signify customer loyalty or in other words, the long-term orientation of a
relationship. Geyskens, Steenkamp and Kumar (1999) considered customer satisfaction as an
essential factor responsible for the long-term association between suppliers and buyers. It has
often been enunciated that the affect component of satisfaction could stimulate a satised cus-
tomer to patronize the service provider as well as referring its services to others. The positive
effect of customer satisfaction on these dimensions of loyalty has been repeatedly voiced in the
literature.
2.1.2.3. Trust
Moorman et al. (1993); Morgan and Hunt (1994) presented trust as a vital element of relation-
ships. Mayer et al. (1995) dened trust as “the willingness of the party to be vulnerable to the
actions of another party based on the expectation that the other will perform a particular action
important to the trust or, irrespective of the ability to monitor or control that other party” (p.
712). Kumra and Mittal (2004) suggested that trust in honesty denotes faith in partner’s open-
ness and truthfulness in business communication.
Lim et al. (1997); Garbarino and Johnson (1999); Chaudhuri and Holbrook (2001) underlined
the signicance of trust in explaining loyalty. Garbarino and Johnson (1999); Chaudhuri and
Holbroook (2001) found credibility trust to be affecting loyalty whereas Singh and Sirdeshmukh
(2000); Sirdeshmukh et al. (2002) proposed benevolence as a component of trust which explains
loyalty. Ball et al. (2004) contended that in a competitive market, lack of trust obstructs loyalty
1.
2.
3.
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Journal of Competitiveness 144
formation. Kassim and Abdullah (2010) studied the link between trust and customer loyalty in
two cultural contexts i.e., Malaysia and Qatar and found it to be signicant. Nguyen and Leclerc
(2011) posited that customers in service industry tend to hold positive behavioural attitude to-
ward the brand they trust. Zeithaml et al. (1996); Castaneda (2011); Kaur et al. (2012); Shainesh
(2012) perceived trust as a signicant marker of customer loyalty.
2.1.2.4. Commitment
Thibault and Kelley (1959) recognized commitment as construct that belongs to literature of so-
cial exchange. The relationship literature also regarded commitment as an important dimension.
Dwyer et al. (1987); Moorman et al. (1992); Morgan and Hunt (1994) opined that commitment in
a relationship is a psychological state where a client has plans to continue the relationship with
his existing supplier. Highlighting the role of commitment in relationships, Parasuraman (1991)
stated that “relationships are built on the foundation of mutual commitment” (p. 139). Moorman
et al (1992) dened commitment as “an enduring attitude or desire for a particular brand or rm.
It is the degree to which customers as members of an organization are emotionally connected to
an organization, its brand or product, sustained by continues desire to maintain membership”.
Jones et al. (2010) investigated the dimensionality of commitment as a construct and concen-
trated on the differential effects of affective, normative and continuance dimensions on an array
of consumer responses signifying loyalty such as repurchase intentions, willingness to pay more,
delity, advocacy, and altruism. They reviewed marketing literature and noted that affective
commitment found place in different contexts like channels, sales, services, etc. as a leading
factor for varied focal responses of customers in form of repurchase intentions (Wetzels et al.,
1998), switching intentions (Fullerton, 2003), and relative attitude (Pritchard et al., 1999).
2.1.2.5. Corporate Image
Aaker (1996) perceived image as “the net result of all the experiences, impressions, beliefs, feel-
ings and knowledge that people have about a company” (p. 113). Minkiewicz et al. (2011) carried
their study in leisure services context and dened it as “stakeholders’ beliefs, perceptions, feel-
ings and attitudes towards an organisation” (p. 192). They further agreed with Bosch et al. (2006)
and expressed the possibility that these perceptions and feelings take shape through customer
response to the strategic intent of the organization.
Shlesinger and Graf von der Shulenburg (1993) stipulated that corporate image and service qual-
ity affect customers’ choice of insurers as well as accepted level of price. Sirgy and Samli (1989)
concluded that image has a direct relationship with store loyalty. Bloemer et al. (1998) carried
their study in banking industry and reported an indirect relationship between the above men-
tioned constructs which is mediated by service quality. Kandampully and Suhartanto (2000)
stated that in tourism industry, image is a major determining factor behind customers’ decision
to repurchase and recommend. Ball et al. (2004) concluded that though, there is a considerable
association between image and loyalty, it is indirect in nature as satisfaction and trust mediate
the relationship. Chun and Davies (2006) in their study concluded that in retail, positive image
positively correlates with customer satisfaction which is a signicant predictor of loyalty.
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145
2.1.2.6. Switching Costs
Jackson (1985) described switching cost as the sum total of economic, physical and psychologi-
cal costs. Porter (1998) opined that switching cost can be considered as the cost of migrating to
another service provider. Chen and Wang (2009) stated that switching costs may range from ter-
mination costs imposed by current service provider to costs of joining another service provider.
Barroso and Picón (2012) chose Spanish insurance market for studying various dimensions of
switching costs and their antecedents as well as outcomes and proposed that switching cost is
a higher – order construct which is a composition of six dimensions namely (i) benets loss
costs; (ii) personal relationships loss costs; (iii) economic risk costs; (iv) cost of searching and
evaluation; (v) set-up costs; and (vi) monetary loss costs. Each of these six dimensions reected
customer’s perception of time, money or efforts involved in switching.
Gronhaug & Gilly (1991); Fornell (1992); Ping (1993, 1997) found switching costs to be positively
related to customer loyalty. Bateson and Hoffman (1999) argued that customer satisfaction and
switching costs are believed to be the most signicant predictors of repurchase intentions or re-
peat buying behaviour. Hauser, Simester, & Wernerfelt (1994) found that switching costs lessens
customers’ degree of sensitivity towards satisfaction levels. Similar effects of switching costs
had been observed for trust and perceived service quality by Aydin, Ozer & Arasil (2005) and
Wang (2010) respectively. Oliva, Oliver, & MacMillan (1992); Jones et al. (2000) stipulated that
switching costs inuence customer loyalty through its interaction with customer satisfaction.
Yanamandram and White (2006) noted that customer’s perception of higher cost of switching
detains him from wandering off to the competitive offers.
2.1.2.7. Communication
Anderson and Narus (1984) perceived communication as a partaking of signicant and well-
timed formal as well as informal information between a customer and a supplier. Anderson and
Narus (1990) perceived communication as an interactive dialogue between company and its cus-
tomers during the pre-selling, selling, consuming and post-consuming stages. Morgan and Hunt
(1994); Lusch and Brown (1996); Johanson and Mattsson (1997) underscored the signicance
of communication in developing and retaining a relationship. Mohr et al. (1996); Siguaw et al.
(2003) argued that it aids in continuing the relationship in time. Claycomb and Martin (2002)
stressed on the importance of regular communication with customers while suggesting that
extended durations where customers are not contacted should be avoided as regular interactions
reduce the perceived risks associated with purchasing. Ndubisi and Chan (2005) suggested that
in context of relationship marketing, communication involves rendering trustworthy informa-
tion, fullling promises and informing in case of delivery related problems. Jaya chandran et al.
(2005) proposed that the quality of relationship is likely to be improved if customers nd it easy
to communicate within the relational information processes. Kaveh (2012) developed a research
model to study the role of trust, attitude, communication, image, customer satisfaction and serv-
ice quality in explaining repurchase intention and concluded that communication has a major
impact on trust in Iranian context.
Above discussed antecedents of customer loyalty together lead to customer loyalty formation as
depicted in Figure 2.
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Journal of Competitiveness 146
Fig. 2 - Customer Loyalty Formation. Source: own elaboration.
3. RESEARCH METHOD
The key research issues of the paper as well as the research techniques employed for addressing
these issues are illustrated in the following sections.
3.1. Research Problem
Fornell et al (1996); Mittal & Lassar (1998); Khatibi et al. (2002) argued that extant customer
loyalty literature fails to reach at a consensus about determinants of customer loyalty. Knox &
Walker (2001) noted the vagueness in the meaning and measurement of customer loyalty and
suggested that more knowledge and comprehension about customer loyalty is required to ad-
dress the prevailing ambiguity. Several practitioners and academicians in the eld of customer
loyalty such as Johnson et al. (2006) pointed that the factors principal to loyalty formation are
complex and dynamic as they change and evolve over time. Different studies proposed differ-
ent combinations of variables that are responsible for customer loyalty formation. Clottey et al.
(2008) pointed that though various determinants of customer loyalty have been identied but
there remains a lack of consensus about the common ones that could be generalized across dif-
ferent industries. This poses a need to bring forth the major antecedents of customer loyalty so
that the factors leading to loyalty can be ascertained and used to enforce greater loyalty among
customers. Assessing and comparing the loyalty status of customers will also bring greater clar-
ity in terms of identifying the company practices and other situational factors that act as major
drivers of customer loyalty in life insurance industry.
Thus, the principal objective of this study is to assess the level of loyalty in life insurance industry
and draw a comparison between customer loyalty in public sector and that in private sector. The
research objectives guiding the study are as follows:
3.2. Research Objectives
1. To identify the factors determining customer loyalty formation.
2. To examine the relative importance of factors which determine formation of customer loyalty.
joc_2-2013_v4.indd 146 26.6.2013 11:46:40

147
Where, A is a constant. w1, w2, w3.... wn represent the relative weights of the factors contributing
in formation of customer loyalty as literature suggests that each of the determinants exerts dif-
ferent level of inuence over development of loyalty.
3. To establish a predictive model comprised of identied factors responsible for customer
loyalty formation.
4. To assess customer loyalty of LIC of India vis-a-vis Private Life Insurance Companies.
5. To suggest the initiatives required by life insurance companies in order to develop and
maintain loyalty of their customers.
Based upon the theoretical review and research objectives of the study following hypotheses
have been framed:
3.3. Research Hypotheses
H1: There does not exist any relationship between customer loyalty and factors identied as its
antecedents.
R = 0
H2: There is no signicant difference between the customer loyalty of public and private life
insurance companies.
μPub = μPv t
3.4. Research Design and Procedures
The research design of present study is twofold as it is exploratory as well as descriptive in nature.
The study starts on an exploratory note and research design remains exploratory till the identi-
cation of loyalty antecedents. Later, when the assessment of customer loyalty takes centre stage,
the research design becomes descriptive.
An instrument for assessment of customer loyalty has been designed on the basis of previously
identied antecedents. It consisted of 35 measurement items related to the constructs of service
quality, customer satisfaction, trust, commitment, corporate image, switching costs and commu-
nication. The study borrowed items from previous researches in the areas of these antecedents
where these items have been used to measure their respective construct effectively and modied
them as per the context of present study and nature of life insurance services in order to make
them more relevant and thus, more effectual. A ve - point Likert scale, ranging from “1 =
strongly disagree” to “5 = strongly agree” was used. Table 1 lists the constructs and measures
used for assessment of customer loyalty.
&/ I))))Q
$Z)Z)Z)ZQ)Q
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Journal of Competitiveness 148
Tab. 1 - Factor wise Items for Assessment of Customer Loyalty. Source: own elaboration.
Factors Items
Serv ice Quality
Sufcient range of life insurance products by the company
Reasonable cost of policy
Highly standardized and simple service delivery process
Technological capability and innovative processes to meet
expectations
Company shows willingness to help and is always ready to
respond to request
Convenient branch location
Positive impression from ambience of company’s branch
premises
Condentiality of clients is ensured
Reliable and dependable services
Agents instil condence
Knowledgeable and competent agents
Empathetic and reassuring approach of agents
Professional appearance of agents
Customer Satisfaction
Company never fails to full expectations
Company has never disappointed so far
Decision to choose this company for life insurance solutions
was wise
Contented with decision of choosing present life insurance
provider
Overall satised with life insurance provider
Trust
Company will point out the best alternative
Appropriate advice at critical times from company
Company’s honesty
Well-trained agents
Commitment
Company deserves repeat purchasing and recommendations
Strong sense of belongingness to the company
Stay with company because happy to be its customer
Company has a great deal of personal meaning
Staying with the company because it would be too costly to
leave*
Staying with the company because it provides greater ben-
ets in comparison of other available options
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149
Corporate Image
Company is concerned with the customers
Company can be trusted in what it says and does
Firmly established and stable company
Switching Costs
Unsure about the policy charges of a new life insurance
provider *
Comparing all life insurance providers in order to switch to
a new company is important
Comparing the life insurance providers with one another
takes a lot of energy, efforts and time
Communication Timely and trustworthy information from the company
The reliability of above research instrument has been examined through Cronbach’s Alpha
which came out to be .955 and established high reliability value for the instrument. Data has been
personally collected within two months duration (November – December 2012) from individual
customers of LIC, SBI Life and ICICI Prudential of Varanasi with a life insurance policy of min
Rs. 5 lakhs and a policy holding duration of atleast 5 Years. Snowball Sampling has been used to
contact the respondents fullling these conditions. Out of 515 surveys distributed, 200 pertain-
ing to LIC, 84 of SBI Life and 66 related to ICICI Prudential Life Insurance were found to be
complete in all aspects and thus, were considered utilizable for data analysis. A second phase of
data collection provided 16 and 34 more surveys pertaining to SBI Life and ICICI Prudential
respectively and thus, the total size of sample reached to 400 with 200 for public sector and 100
for each of the private sector life insurance companies. Multiple Regression Analysis and Inde-
pendent samples t-test in SPSS 16 has been used for testing the hypotheses.
4. FINDINGS AND DISCUSSION
A thorough review of literature revealed following seven factors which act as principal anteced-
ents of customer loyalty:
Service Quality
Customer Satisfaction
Trust
Commitment
Corporate Image
Switching Costs
Communication
Above mentioned factors were further evaluated to ascertain their relative importance in cus-
tomer loyalty formation. The antecedents of customer loyalty and their relative weight in cus-
tomer loyalty formation are presented in Figure 3.




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Journal of Competitiveness 150
Fig. 3 - Relative Weights of Antecedents. Source: own elaboration.
It is clearly visible that service quality is the most prominent among all factors that play decisive
role in customer loyalty formation. Commitment and Trust also emerged as signicant factors
that affect customer’s loyalty. The predictive model for customer loyalty assessment is as fol-
lows:
CL = .174 + .356 SQ + .010 CS + .166 T + .220 C + .110 CI + .075 SC + .037 C
This also establishes the relationships of customer loyalty with its antecedents and thus, rejects H1.
Assessment of customer loyalty in public and private sector life insurance revealed the domi-
nance of public sector life insurer i.e., LIC in Indian life insurance industry as it stood out with
better scores on almost all the items. Following are the depictions of customer loyalty in Indian
life insurance industry:
Fig. 4 - Customer Loyalty in Life Insurance. Source: own elaboration.
Mean customer loyalty at LIC, which is the only public sector life insurer in India, is 4.86 whereas
it is 4.47 for public sector life insurers. Based upon the responses generated from the customers
of LIC, it can be suggested that 69% of its customers are loyal towards LIC. The responses from
select private life insurers suggest the level of customer loyalty in private sector life insurance to
be 64% which is not considerably lesser than public sector.
As far as the individual life insurance providers are concerned, LIC is enjoying highest level of
customer loyalty with other two following a close trail.
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151
Fig. 5 - Customer Loyalty in Life Insurance (Company Wise). Source: own elaboration.
LIC has secured 68% customer loyalty which suggests that 68% of its customers can be consid-
ered loyal towards it. SBI Life is not far behind with mean responses of 4.69 which reect that
67% of its customers fall into the category of loyal customers. ICICI Prudential has scored 4.01
mean responses i.e., 57% level of customer loyalty.
To compare the means from two different groups of data, T-test is used since it can help in nd-
ing out if means are signicantly different from one another or if they are relatively the same.
With the help of two sample t-test, the equality between customer loyalty in public sector i.e.,
LIC and in private sector has been tested. The results are presented in the appendix.
The signicance value of F (14.570) under Levene’s Test is .000 which is lesser than the default
value of .05. A value less than .05 means that the variability in two conditions is not the same.
Practically, it indicates that in order to determine whether there is a signicant difference be-
tween means of public sector customer loyalty and private sector customer loyalty, we need to
refer to Sig (2-Tailed) value in the second row which is .000.
The Sig (2-Tailed) value is lower than the default value which suggests that H2 cannot be ac-
cepted:
μP ≠ μPvt
Thus, it can be concluded that Customer Loyalty at LIC is signicantly different from the that at
private life insurance sector. The apparent inconsistency between the numerical mean values of
public and private life insurance sector can be attributed to chance errors.
5. CONCLUSION
The factors leading to customer loyalty are mainly those which either stem from customers’ eval-
uations and subsequent perceptions of the service such as service quality and customer satisfac-
tion or the ones that fall into the category of relational outcomes of repeated service transactions
like trust and commitment. There are few others which are broadly related to the company’s
own position such as corporate image and communication or industry dynamics like switching
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Journal of Competitiveness 152
costs. Thus, this study corroborates to Kahill’s (2007) classication of loyalty antecedents and
proposes following categorization of antecedents of customer loyalty:
Fig. 6 - Antecedents of Customer Loyalty: A Classication. Source: own elaboration.
In context of life insurance services in India, service quality holds greatest signicance for the
customers while taking conscious or unconscious decision of binding their loyalty with a life
insurer. Customers’ level of Commitment and their Trust in life insurer also determine status of
their loyalty signicantly. An interesting observation is the low strength of customer satisfaction
as a predictor of customer loyalty which is peculiar since customer satisfaction has been regarded
as an obvious step toward customer loyalty in most of the industries. The low importance of
customer satisfaction in predictive model of customer loyalty formation simply corroborates
with the higher signicance of factors such as trust and commitment which make the customers
stay with their life insurer even if their level of satisfaction is poor. This is not unusual in case of
nancial services as a large number of customers feel apprehensive about the security aspect as
well as returns prospect of their investments and prefer to stay with a nancially stable company
that can assure them about safety of their investment along with sound returns even if the com-
pany sometimes fail to conform to their expectation.
Customer loyalty of public and private sector life insurance seem to be same but the real picture
is somewhat different. Though, the mean scores of customer loyalty in public and private sectors
lie close to each other, the loyalty status of life insurance customers in public sector is found to
be signicantly different from private sector customer loyalty which suggests that sector does
inuence customers’ decision to stay with the company. Indian customers, while making their
decisions regarding nancial investment, seem to be keenly considering company’s stability and
security aspects that are imbibed in the business dynamics of public sector which make them
choose LIC over other private life insurance companies.
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153
6. IMPLICATIONS
It should be noted that customer loyalty cannot be created in a vacuum as there are seven other
factors which need to be taken care of in order to attain customers’ loyalty. Service quality is
of primary importance in respect of customer loyalty and life insurers, who desire unwavering
loyalty of their customers, should carefully assess and deliver quality services to their custom-
ers by offering better products with greater exibility and reasonable charges, hassle free claim
procedures and a proactive and systematic grievance handling mechanism. Such measures will
help the companies in instigating committed behaviours among their customers which are an-
other requisite of customer loyalty. To develop trustworthiness of the company, greater trans-
parency and better customer service should be provided to the customers repeatedly. Since life
insurance is a latent product with relatively small number of service encounters and almost
negligible contact between customers and the life insurer as life insurance business is carried
out primarily through agency relationships, a large onus of ensuring loyalty of customer lies on
agents. Thus, life insurance companies need to conduct systematic training programs for their
agents whereby agents are trained and designed as company’s own live loyalty program. Another
important aspect of life insurance business is that customers get to evaluate company’s service
after a considerably long period and thus, it gets difcult to forge customer loyalty since service
quality evaluations and resultant commitment take time to materialize. To compensate this, life
insurance companies should design active and regular integrated marketing communications ad-
dressing general queries and other apprehensions of customers and informing them about new
products as well as upgradation in an existing one.
7. SCOPE FOR FUTURE STUDY
Present study is focused on evaluating customer loyalty in life insurance industry on the basis
of assumed linear relationship of loyalty with its antecedents. Further investigation may be un-
dertaken to explore and establish the possible non-linear relationship between loyalty and its
individual antecedents. The antecedents discussed in the literature review section are mainly
customer variables which may be classied into evaluative judgements and relational outcomes.
Future studies may test the interrelationships of these variables in relation to customer loyalty
formation and examine the possible indirect and interactive effects on the relationships of cus-
tomer loyalty. Researchers may also work in the direction of developing and validating a scale for
customer loyalty assessment on the basis of preliminary research instrument used in this study.
8. LIMITATIONS
The perceived limitations of this study are primarily concerned with the geographical con-
straints. The study has been conducted in Uttar Pradesh, a major state of India which limits
its genralizability to other countries as cultural and geographical differences create signicant
distinctions in the pre-consumption expectations and post-consumption evaluations of the cus-
tomers. Also, the study is focused on the loyalty status of life insurance customers which has
resulted in partial coverage of the insurance industry as customer loyalty in general insurance
has not been covered at all.
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Journal of Competitiveness 154
Assessment of customer loyalty in this study is based upon the antecedents identied from the
extant literature and authors’ discretion. However, the list of antecedents proposed in this study
does not claim to be comprehensive which means that chances of other culture and industry
specic loyalty predictors’ existence which have not been discussed here are good.
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Contact information
Alok Kumar Rai
Professor
Medha Srivastava
Research Scholar
Faculty of Management Studies
Banaras Hindu University
Email: alok.fmsbhu@gmail.com; srivastava.medha@gmail.com
94.
95.
96.
JEL Classication: M31
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161
APPENDICES:
Group Statistics
Sector N Mean Std. Devia-
tion
Std. Error
Mean
Loyalty Mean public 200 4.8599 .90695 .06413
private 200 4.4693 1.04132 .07363
Levene’s Test for Equality of Variances determines if the two conditions have about the same or
different amounts of variability between scores. It is displayed in the table below:
Independent Samples Test
Levene’s Test
for Equality
of Variances
t-test for Equality of Means
F Sig. t df
Sig.
(2-
tailed)
Mean
Differ-
ence
Std.
Error
Differ-
ence
95% Condence
Interval of the Dif-
ference
Lower Upper
Loyalty Mean
Equal
vari-
ances
as-
sumed
14.570 .000 4.000 398 .000 .39057 .09764 .19861 .58254
Equal
vari-
ances
not as-
sumed
4.000 390.638 .000 .39057 .09764 .19860 .58255
Model Summary
Mod-
el RR
Square
Adjust-
ed R
Square
Std.
Error of
the Esti-
mate
Change Statistics
R Square
Change F Change df1 df2 Sig. F
Change
1 .996a .992 .992 .08842 .992 7156.036 7 392 .000
a. Predictors: (Constant), Communication, Switching Cost , Customer Satisfaction , Commit-
ment, Service Quality , Trust , Corporate Image
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Journal of Competitiveness 162
ANOVAb
Model Sum of
Squares df Mean
Square F. Sig
1
Regression 391.662 7 55.952 7.156E3 .000a
Residual 3.065 392 .008
Total 394.727 399
a. Predictors: (Constant), Communication, Switching Cost , Customer Satisfaction , Commit-
ment, Service Quality , Trust , Corporate Image
b. Dependent Variable: Customer Loyalty
Coefcientsa
Model
Unstandardized
Coefcients
Stand-
ardized
Coef-
cients t Sig.
Collinearity Sta-
tistics
BStd. Er-
ror Beta Toler-
ance VIF
1
(Constant) .174 .040 4.336 .000
Service
Quality .356 .011 .310 32.749 .000 .222 4.511
Customer
Satisfaction .010 .005 .013 1.794 .074 .392 2.549
Trust .166 .007 .235 24.469 .000 .215 4.655
Commitment .220 .005 .321 46.817 .000 .421 2.375
Corporate
Image .110 .006 .191 17.927 .000 .174 5.760
Switching
Cost .075 .005 .079 15.370 .000 .759 1.318
Communica-
tion .037 .004 .083 9.096 .000 .238 4.208
a. Dependent Variable: Customer Loyalty
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163
Collinearity Diagnosticsa
Model
Dimension
Eigenvalue
Condition Index
Variance Proportions
(Constant)
Service Quality
Customer Satis-
faction
Trust
Commitment
Corporate Image
Switching Cost
Communication
1
1 7.610 1.000 .00 .00 .00 .00 .00 .00 .00 .00
2 .212 5.998 .01 .00 .00 .00 .00 .01 .04 .11
3 .079 9.796 .00 .00 .03 .00 .33 .00 .05 .16
4 .046 12.917 .00 .00 .27 .10 .17 .08 .01 .00
5 .020 19.340 .05 .00 .00 .48 .24 .10 .01 .64
6 .017 21.353 .05 .01 .31 .11 .16 .52 .25 .05
7 .011 25.977 .38 .06 .39 .03 .07 .18 .63 .04
8 .005 39.969 .51 .93 .00 .27 .02 .11 .00 .00
a. Dependent Variable: Customer Loyalty
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